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Benign inflation to keep rates on hold

Inflation has remained benign giving the Reserve Bank room to leave rates on hold.

The TD Securities/Melbourne Institute monthly inflation gauge remained flat in June following a rise of 0.3 per cent in May and 0.4 per cent in April.

Price rises for rent, petrol and tobacco in June were offset by falls in fruit and vegetables, health and recreation and culture.

In the year to June, the gauge rose 3.0 per cent.

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The RBA's target range for inflation is between two and three per cent.

But even if inflation pushes beyond three per cent in the June quarter, that won't force a rate hike, TD Securities head of Asia Pacific research Annette Beacher said.

"It appears that the RBA, like the US Federal Reserve, is willing to run the risk of higher inflation before it acts, hence why we pushed our call for the first RBA hike to March quarter 2015," Ms Beacher said.

"We expect underlying inflation to remain in the top half of the RBA's two-to-three per cent target band and could remain elevated closer to three per cent given the clear signal from our gauge that inflation remains sticky."